The unemployment picture: No light at the end of the tunnel

A month ago, when the unemployment rate declined slightly for the second consecutive month, media headlines trumpeted the end of the recession. This month, both the rate and number of unemployed rose again, more than wiping out the previous gains. Will the same news media proclaim that now we’re in a depression?

Actually, the changes in each case are small and, as the Bureau of Labor Statistics says, unemployment has been essentially unchanged over this period. However, the bureau was forced to revise its rosy picture claiming that 66,000 jobs had been created in February. Instead, the government agency said, there was a net loss of 2,000 jobs.

Manufacturing lost “only” 38,000 jobs in March, compared with a monthly average of 110,000 during 2001. But, of course, to maintain its share in the economy, manufacturing would have to gain jobs as the labor force increases – probably about 30,000 per month.

The health services sector also continued to grow. But its rate of growth over the last few months is unsustainable because it cannot continue to grow at a rate much higher than the economy as a whole. But there is no reason to think that will happen in the immediate future.

On the whole, the report seems to indicate that the situation is, for now, bumping along at the bottom of a “U,” with some signs of recovery. But there are a number of causes for concern.

1) Long-term unemployment continues to grow. This has been a steady trend over the past year, not just a one-month statistical fluctuation. It rose by about 250,000 in March and now totals 1,333,000. This reflects that many people caught by the big wave of layoffs that began a year ago, hitting manufacturing especially hard, have been unable to find new jobs.

Other indications that it was difficult to find work last month include an increase in average time spent unemployed, which rose to 15.4 weeks, its highest level since January 1998. Similarly, the share of the unemployed who are unsuccessfully seeking work for 27 or more weeks jumped from 14.9 percent to 16.3 percent, the highest level since July 1997.

2) The increase in unemployment was particularly sharp among African Americans, whose unemployment rate jumped more than a percentage point, to 10.7 percent, the highest level in nearly five years.

3) Government employment (21 million) continues to be a stabilizing factor, with another small increase of 37,000. But there are disturbing signs. Federal employment has been flat ever since then Vice President Gore took on the job of “reinventing government,” with massive cuts in employment by the federal government.

Until now, state and local governments have taken up the slack. But that picture has changed as state and local governments, hit with revenue declines, are beginning to impose hiring freezes, forced retirements and layoffs.

4) Overall construction employment decreased by 37,000 in March, with most of the job losses in heavy construction.

5) Of the 58,000 new jobs in March, business employers generated only 21,000. The rest were in the public sector, mainly in public schools. Apart from government employment, job growth last month was confined almost entirely to the service sector and in particular to temporary-help agencies, which added 69,000 of the 118,000 new service jobs.

There’s one other disturbing factor: Rising unemployment is beginning to undermine the wage increases that have helped to sustain consumer spending, leading to a situation where earnings are declining in the face of rising energy prices that threaten to dilute purchasing power even more. The average hourly wage of production and non-supervisory workers rose 4 cents in March and only 8 cents in the entire first quarter, and increased 2.8 percent since last year’s first quarter.

Few observers expect a turn around in the unemployment picture for several months. After the 1990-91 recession ended, unemployment did not begin to fall for another 15 months, and the work force continued to shrink until 1993.